Wildhorse, Inc., a resort management company, is refurbishing one of its hotels at a cost of $6,336,382. Management expects that this will lead to additional cash flows of $1,460,000 for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Wildhorse go ahead with this project?

Answer and Explanation:

The computation of the IRR is shown below:

Year       Particulars       Amount (in $)

0            Initial cost             -6,336,382

1Year 1 cash inflows1,460,000

2Year 2 cash inflows1,460,000

3Year 3 cash inflows1,460,000

4year 4 cash inflows1,460000

5Year 5 cash inflows1,460,000

6Year 6 cash inflows  1,460,000

IRR                                         10.12%  

Perform the IRR formula i.e.

= IRR() in excel

Now the net present value is

= Present value of cash inflows - initial investment

= ($1,460,000 × 4.1114) - $6,336,382

= $6,002,644 - $6,336,382

= -$333,738

The 4.1114 is the PVIFA factor of 6 years at 12%

hence, the Wildhorse should not go ahead with the project

answer; ///i believe the correct answer is(e) complementary to each other;